The treasurer of a major U.S. firm has $12 million to invest for 3 months. The interest rate in the U.S. is 0.42 percent per month. The interest rate in Great Britain is 0.52 percent per month. The spot exchange rate is 0.70, and the three-month forward rate is 0.71. Ignoring transaction costs, in which country would the treasurer want to invest the company's funds? Why?
a) U.S.; earn an additional $47,211.16.
b) U.S.; earn an additional $135,325.24
c) U.K.; earn an additional $9,418.02
d) U.K.; earn an additional $38,522.47
e) U.K.; earn an additional $121,510.67.
Suppose the Treasurer invest in US, than
Interest Earned for 3 months = 12,000,000*0.42%*3 = 151,200
Now Suppose the treasurer invest in UK, then
Conversion of $ into GBP = ...
The solution provides a detailed step-by-step analysis and decides in which country would the treasurer want to invest the company's funds.